Brussels, 26 July 2012
Mergers: Commission approves acquisition of aviation equipment company Goodrich by rival United Technologies, subject to conditions
Following an in-depth investigation (see IP/12/308) the European Commission has cleared under the EU Merger Regulation the proposed acquisition of Goodrich Corporation by United Technologies Corporation (UTC), both US-based companies active in the production and sale of aviation equipment on a worldwide basis. The approval is conditional upon the divestment of Goodrich's businesses in electrical power generation (AC) and in engine controls for small engines. It is also subject to Rolls Royce being granted an option to acquire Goodrich's lean burn fuel nozzle R&D project.
The Commission had concerns that the transaction, as initially notified, would have left the merged entity without a sufficient competitive constraint on the market for power generation. It also had concerns that some competing engine suppliers, which depend on Goodrich for certain components such as fuel nozzles and engine controls, could be shut out from access to these components as a result of the merger. The commitments offered by the parties adequately address these concerns.
Commission Vice President in charge of competition policy Joaquín Almunia said: "The remedies ensure that competition and incentives to innovate remain strong in these high-technology markets, for the ultimate benefit of the aerospace industry customers. In this case concerning a major transaction affecting markets on both sides of the Atlantic, we worked in close and very effective cooperation with the US and Canadian competition authorities".
The Commission's investigation showed that the transaction would have reduced competition in the aerospace markets for AC power generation, and had detrimental effects for engine producers through its effects on the markets for engine controls for small engines and fuel nozzles for engines.
As the markets for AC power generation present high barriers to entry and the parties are each other's closest competitors, the proposed transaction would have left the merged entity without a sufficient competitive constraint on this market.
Goodrich currently supplies engine producers - such as Williams and Honeywell - with engine controls which they depend on when they compete against UTC's engine producer Pratt & Whitney. The Commission was concerned that the merged entity would have the ability and incentive to use these supply relationships to the advantage of Pratt & Whitney.
Similarly, Rolls Royce relies on Goodrich to develop a new lean burn fuel nozzle, which will be used on future environmentally responsible gas turbine aircraft engines and which will compete with Pratt & Whitney. The Commission was concerned that the transaction could remove the incentives for Goodrich to make the development of this new product a success.
In order to remove these concerns, UTC proposed to (i) divest Goodrich's businesses in aircraft electrical power generation and distribution systems, (ii) divest Goodrich's business in engine controls for small aircraft engines and (iii) offer Rolls-Royce an option to acquire Goodrich's lean burn fuel nozzle R&D project. The proposed commitments fully address the Commission's concerns.
The Commission concluded that the merged entity would continue to face competition from a number of strong competitors and customers would still have sufficient alternative suppliers. The decision is conditional upon full compliance with the commitments.
Other affected markets
The Commission examined the competitive effects of the proposed acquisition in various other affected markets and concluded that the transaction would not raise competitive concerns in any of them.
In particular, the Commission examined these effects in relation to engine controls. Rolls Royce announced during the investigation its intention to exercise its option to buy Goodrich out of the Aero Engine Controls (AEC) joint venture, which holds all Goodrich activities for engine controls for large engines. In combination with the divestiture of Goodrich's engine control activities for small engines mentioned above, this removes the entire overlap between UTC and Goodrich in engine controls markets.
Companies and products
UTC is active in the production of a broad range of high-technology products and support services for the building systems and aerospace industries worldwide. The UTC group comprises a number of major business units such as Carrier heating and air conditioning; Otis elevators; UTC Fire & Security systems and UTC Power fuel cells. Three businesses are particularly relevant for the current transaction: Hamilton Sundstrand aerospace systems and industrial products; Pratt & Whitney aircraft engines; and Sikorsky helicopters.
Goodrich is active in the production and sale of systems and services to the aerospace, defence and security industries on a worldwide basis. Goodrich has activities in three main business areas: actuation and landing systems; nacelles and interior systems; and electronic systems.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
There are currently five other phase II investigations. The first one concerns the planned acquisition of EMI's recorded music business by Universal (see IP/12/311), with a deadline set for 6 September 2012. The second ongoing phase II investigation was opened in April 2012 and examines the creation of a mobile commerce joint venture by UK mobile operators Telefónica, Vodafone and Everything Everywhere (see IP/12/367), with a deadline set for 19 September 2012. The third phase II investigation relates to the proposed acquisition of Inoxum, the stainless steel division of ThyssenKrupp of Germany, by the Finnish stainless steel company Outokumpu (see IP/12/495), with a deadline until 24 October 2012. The fourth ongoing phase II investigation was opened in June 2012 into the proposed acquisition of Orange Austria by Hutchinson (see IP/12/726). The deadline for this investigation is 6 November 2012. Finally, the fifth one concerns the planned acquisition of TNT Express by UPS (see IP/12/816), with a deadline set for 28 November 2012.
More information on the case is available at:
Antoine Colombani (+32 2 297 45 13)
Marisa Gonzalez Iglesias (+32 2 295 19 25)